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Canadian Bankruptcy Myths
One of the things a trustee has to deal with in his or her practice is the misinformation given out about bankruptcy. Some of the worst offenders are the media.
The following are some of the common bankruptcy myths I have had to dispel:
MYTH #1: I will never get credit again.
Not true! People may actually be a better credit risk after filing bankruptcy, as once they have filed their bankruptcy papers they have no debts. However, in all cases a bankruptcy debtor will be able to get credit again after filing bankruptcy.
Please refer to this list of after bankruptcy lenders, in every province in Canada, for a credit card, personal loan, car loan or home mortgage.
MYTH #2: My friends and neighbours will know I have filed bankruptcy.
Not true! Unless you're a prominent person and the filing is picked up by the media, the chances are very good that the only people who will know about a filing are your creditors. In rare circumstances there will be a legal notice placed in the "legals section" of the newpaper.
MYTH #3: I will lose everything.
Not true! Many assets are exempt from seizure. The items that you can keep are set by your province or territory of residence.
MYTH #4: Only deadbeats file for bankruptcy.
Not true! Most of the people who file bankruptcy are good, honest, hard-working people who file as a last resort after months or years struggling to pay the bills left over from some catastrophic event or set of circumstances. It can be because of a divorce, the loss of a job, a failed business venture, a serious illness, or some family emergency, or because the person honestly and mistakenly fell into debt at a young age before they knew better, and before they knew anything about budgeting or how to manage money.
The bankruptcy laws in Canada have been designed so that a debtor may receive an honest and legal elimination of their debts, while still protecting the debtors' creditors.
More than 122,000 people filed a bankruptcy or a consumer proposal in 2015.
MYTH #5: If I have a financial problem I'm better off going to a non profit credit counsellor because they are completely independent, impartial and have my best interest at heart.
Not true! “Non Profit” Credit Counselling Agencies are not independent and impartial. They are funded by credit grantors and may have a conflict of interest in giving impartial advice as outlined by these organizations.
A recent Consumer Affairs Canada Report on the Canadian Credit Counselling Industry warns that some non-profit credit counsellors may advise only those solutions that bring in funding via commissions or donations from creditors.
MYTH #6: If I file for bankruptcy it's going to affect my spouse who has her own job and is in no way responsible for my debt.
Not true! A bankruptcy will only affect the person filing and not in any way reflect on the spouse, including the spouse's credit rating, if the spouse is not responsible for any of the debt.
MYTH #7: Income taxes cannot be erased in a bankruptcy.
Not true! Income taxes and almost all other debts are erased in a bankruptcy.
Most debtors who file bankruptcy will be discharged from bankruptcy nine months from when they filed bankruptcy. When a person is discharged from bankruptcy all of their debts will be eliminated, with some minor exceptions.
MYTH #8: If you file for bankruptcy it may cause more family troubles and may even lead to divorce.
Not true!Usually, it works just the opposite. Filing bankruptcy is not the problem. The problem is not being able to pay your bills. All good, honest, hard-working people feel a strong need to pay their bills, and not being able to do so causes them to feel tremendous stress.
Bankruptcy starts to relieve the stress because as soon as bankruptcy is filed there is an immediate stay of proceedings. That means creditors cannot take any action to seize assets, other than those signed over as security in the event of non-payment. Nor can creditors seek a court order to garnishee wages. Collection calls also stop once the debt collector knows the individual has filed for bankruptcy.
If your experience is like that of other couples, you will find that filing bankruptcy will lower the stress level on the marriage and give your marriage a fighting chance.
MYTH #9: You will never be able to own anything again.
Not true!Once you are discharged from bankruptcy, usually in nine months, there are no restrictions on you at all. You can buy, own and possess whatever you can afford. Even if you win the lottery it is yours to keep with no obligation to repay any of your past creditors.
MYTH #10: There are so many restrictions on a person who is in bankruptcy that it is not worth going bankrupt or filing a proposal.
A person who is filing bankruptcy for the first time will be discharged from bankruptcy in 9 months. While in bankruptcy the debtor must make a monthly payment to the trustee, not hold any credit cards, cannot act as a companies' director, will borrow no more $500 unless they notify the lender they are bankrupt, attend two counselling sessions and they will be required to report their monthly income and expenses to their trustee.
Most people will never know that you have filed for bankruptcy.
In the most common type of personal bankruptcy, a creditors' meeting is not held unless requested by the Official Receiver (Office of the Superintendent of Bankruptcy) or by creditors.
MYTH #11: It costs too much to go bankrupt. I can't afford it.
Not true!Bankruptcy is the cheapest way for a person to get a fresh financial start. The payments a debtor makes in the nine months of bankruptcy are set by the government. Trustee fees come out of this amount. In the most common situations, the monthly payments are less than $200 a month for nine months.
MYTH #12: I don't want to go bankrupt so I will have to see a credit counsellor; besides they are well trained, highly qualified and government regulated, so I am protected.
Not true! A recent Consumer Affairs Canada Report on the Canadian Credit Counselling Industry warns that a lack of regulation of the industry makes consumers vulnerable to receiving poor advice from untrained or poorly qualified counsellors.
Trustees in bankruptcy are the only debt professionals in Canada, who offer a full range of debt relief solutions, as explained in Myth #13, below.
MYTH #13: You only see a trustee if you are going to go bankrupt.
Not true! Trustees have a number of ways to help people suffering a financial crisis. These can include credit counselling, refinancing, budgeting and making settlement offers or proposals. Most trustee in bankruptcy will give you a free initial consultation.
Trustees in bankruptcy are highly trained professionals with a stringent code of ethics who will give you the best advice they can, even if it means you do not use their services. All trustees have at times:
• advised people not to go bankrupt because they were judgment proof;
• advised people on how to make an informal proposal without the services of a trustee in bankruptcy;
• advised people on how they could get compassionate relief from their debts without the services of a trustee in bankruptcy;
• referred people to other professionals where it was in the best interest of the debtor;
• advised people on how they could avoid bankruptcy and get control of their debt by better budgeting and discipline, without the services of a trustee in bankruptcy.
NOTE: Almost all trustees in bankruptcy have both an accounting designation and a university degree. In addition, before being issued a trustee license, all trustees are required to complete and pass a bankruptcy and law training course that lasts for 3 years and be investigated by the RCMP. Ongoing professional development is mandatory. Trustees in bankruptcy are subject to stringent codes of ethics in the Bankruptcy and Insolvency Act, the CAIRP and the accounting bodies.
Trustees in bankruptcy are regulated by the government (Office of the Superintendent of Bankruptcy). The Office of the Superintendent of Bankruptcy performs regular audits on each trustee office.
If anyone has a dispute with how a trustee has handled his or her bankruptcy or proposal there is a dispute mechanism in place for handling mediating disputes.